Real exchange rate and quote structure
Suppose the exchange rate is quoted as FCC (same as DC/FC).
Then the equation for the real exchange rate
Real S(DC/FC) = S(DC/FC) * ( P(FC) / P(DC) )
That is to say, in other circumstances you follow the DC/FC convention for putting the rates into the formula, but here it is inverted, the FC on top and the DC in the denominator.
Why is it inverted? I don’t get it. |